Senate blocks Watt nomination

Senate Republicans on Thursday blocked the nomination of Rep. Mel Watt to be the regulator of taxpayer-owned mortgage companies Fannie Mae and Freddie Mac, despite a renewed effort by the administration to pressure GOP senators to get behind President Barack Obama’s choice to lead the Federal Housing Finance Agency.

Many Senate Republicans said they oppose Watt (D-N.C.) because someone with more experience in mortgage finance, not a politician, should run the agency. Democrats have dismissed such concerns, arguing Watt has been deeply involved in housing issues during more than 20 years in Congress.

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The Senate voted 56-42 against advancing Watt’s nomination; 60 votes were needed to limit debate and proceed to a vote on the nomination.

The White House, consumer advocates and some industry leaders tried to build support for Watt this week, arguing the agency needs a confirmed director as Congress begins working on legislation to get rid of Fannie and Freddie and put in place a new mortgage finance system.

This effort didn’t work and it’s unclear what would lead Republicans to later support Watt. Democrats could hold more votes in hopes of pressuring some moderate Republicans and Senate Majority Leader Harry Reid (D-Nev.) said he plans to do so ”at some point in the very near future.”

Sens. Richard Burr of North Carolina and Rob Portman of Ohio were the only two Republicans to vote in favor of the nomination.

“The concerns I’ve always had is to be sure we’re not going to overreach again and put taxpayers at risk, and I got assurances that that would not be the approach that he would take,” Portman said following the vote.

Senate Democrats said they would continue to try to get Watt confirmed.

“It is not a secret that this vote was pure obstructionist politics at play,” Senate Banking Committee Chairman Tim Johnson (D-S.D.) said in a statement. He added: “This is not the end for Congressman Watt’s nomination, and I will continue to fight to see that he is confirmed.”

Homeowner advocacy groups have pressed the White House to push Watt’s nomination because they argue FHFA’s current leader, acting director Edward DeMarco, has not embraced a program that could aid borrowers who are having trouble making mortgage payments by reducing their loan balances.

DeMarco is popular with Republicans, one reason they are not eager to see him replaced.

What the White House will do if Watt’s nomination remains in limbo is unclear.

“It is enormously disappointing that Republicans would filibuster the nomination of such a highly qualified nominee,” White House press secretary Jay Carney told reporters.

The administration could nominate Sandra Thompson, one of DeMarco’s deputies, or Moody’s Analytics Chief Economist Mark Zandi, who was considered for the nomination earlier in the year, according to a source. Obama could also choose to promote Thompson to acting director.

Thompson enjoys the backing of some homeowner advocates, who believe she may be open to expanding homeowner assistance programs, and Republicans would have a hard time arguing she doesn’t have the needed expertise to run the agency. She currently oversees policy and market analysis at the FHFA and previously spent 23 years at the Federal Deposit Insurance Corp.

“We’ve spent so much time at the White House prior to them naming a nominee, asking them to please not appoint a politician, please appoint a technocrat,” said Sen. Bob Corker (R-Tenn.). “We know it’s going to be a Democrat technocrat, but please appoint your technocrat, OK?”

The White House could consider using a recess appointment to place Watt in the job, but there are potential legal drawbacks to that approach. A court ruling earlier this year has raised questions about when the president can make a recess appointment and the Supreme Court plans to consider the case.

If Watt is appointed through a recess appointment and it is later invalidated by the courts, it could open FHFA to a series of legal challenges based on actions taken while Watt was at the helm.

The FHFA has been without a confirmed director since James Lockhart left the post in August 2009. DeMarco, Lockhart’s deputy, took over as acting director and has overseen Fannie and Freddie as they return to profitability.

Fannie and Freddie were taken over by the government in September 2008 at the height of the financial crisis and have received $188 billion in taxpayer bailouts.

But with the housing market recovering, Fannie and Freddie are now churning out profits that go straight to the government. So far, they have sent $145 billion back to the Treasury.

Watt is the second Obama FHFA nominee to be scuttled by Republican opposition.

Former North Carolina banking commissioner Joseph Smith withdrew from the running in January 2011 after Republicans threatened to block a vote on his nomination, saying they didn’t want an administration “lapdog” overseeing Fannie and Freddie.